Kansas City Southern (NYSE:KSU) Q1 2018 Earnings Conference Call Transcript

Apr 20, 2018 • 08:45 am ET

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Kansas City Southern (NYSE:KSU) Q1 2018 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Greetings and welcome to the Kansas City Southern First Quarter 2018 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

(Operator Instructions) As a reminder, the conference is being recorded.

This presentation includes statements concerning potential future events involving the Company which could materially differ from the events that actually occur. The differences could be caused by a number of factors, including those factors identified in the Risk Factors section of the Company's Form 10-K for the year-ended December 31, 2017, filed with the SEC. The Company is not obligated to update any forward-looking statements in this presentation to reflect future events or developments. All reconciliations to GAAP could be found on the KCS website, www.kcsouthern.com.

It is now my pleasure to introduce your host, Mike Upchurch, Chief Financial Officer for Kansas City Southern. Mr. Upchurch, you may now begin.

Executive
Mike Upchurch

Thank you and good morning everyone. This is Mike Upchurch. Now I would like to welcome everyone to our first quarter 2018 earnings call.

Our CEO, Pat Ottensmeyer, is unfortunately out of town and will not be able to join us on the call today due to the passing of his mother yesterday afternoon. All of our thoughts and prayers are with Pat and his family and I would hope you would agree with us that Pat has his focus in the right place today being with his family.

With that said, this morning, Warren Erdman, our Executive Vice President of Administration & Corporate Affairs will join us in case you have specific questions about regulatory matters.

Let me begin our prepared remarks with some opening comments on Slide 5. For the quarter, revenue increased 5% on 1% volume growth. Brian will discuss our revenue performance in more detail, but we delivered strong results in most of our commodity groups led by automotive, intermodal, and chemicals and petroleum which continues to benefit from growth related to Mexican energy reform.

Offsetting those growth areas, we did experience weakness in our coal business driven primarily by our Texas utility that closed a plant in January. The North American Rail network congestion did impact both revenues and operating expense during the quarter. Congestion affected primarily our cross-border business as cycle times slowed and we experienced some challenges positioning equipment in and out of Mexico. Both Jeff and I will touch on this later. However, we believe weakness related to network congestion will gradually improve during the second quarter.

We are confirming our mid-single-digit volume outlook for fiscal year 2018. We expect volume growth to improve throughout the rest of the year, particularly in our chemicals and petroleum business, as destination terminals in Mexico continue to be built or expanded to carry more refined product. Sasol and other plastics facilities will begin production in the back half of the year and we would expect intermodal to continue to grow. So far, in April, we have started to see some acceleration in our carload